GOLD CLAUSE CASES Norman v. Baltimore & Ohio Railroad Co. 294 U.S. 240 (1935) Nortz v. United States 294 U.S. 317 (1935) Perry v. United States 294 U.S. 330 (1935)

The decisions in these cases were virtually the only Supreme Court opinions upholding congressional new deal legislation before the judicial "revolution" of 1937. The Depression had caused an emergency in which contracts calling for payment in gold, rather than paper, "obstruct[ed] the power of Congress." So declaring, Congress passed the joint resolution of June 5, 1933, which asserted its regulatory power over gold as an item that "affect[ed] the public interest." Such gold clauses were "against public policy," and henceforth debtors could legally discharge their obligations in any other legal tender. Creditors resisted this action because, in conjunction with earlier legislation that had reduced the gold value of the dollar, it effectively devalued debts by allowing paper to be substituted for gold. Even though these suits involved relatively small amounts, they represented one hundred billion dollars in outstanding gold obligations (threefourths of which were private debts) at a time when the Treasury had only some four billion dollars in gold reserves.

In Norman v. Baltimore & Ohio Railroad Company, the plaintiffs sought to enforce payment of $38.10 in currency, the equivalent of the value of the gold ($22.50) specified in the contract, a sixty-nine percent markup. Chief Justice charles evans hughes, for a 5–4 Court, reviewed the monetary power and, resting on Knox v. Lee (1871), insisted on the government's power to void any private obligation of contracts that interfered with the exercise of Congress's power to regulate currency. The majority said that requiring debtors to pay sixty-nine percent more in currency to match the gold value of their debts would cause "dislocation of the domestic economy." The majority opinion, while reaching perhaps the only possible satisfactory result for the stability of the economy, was, in the conventional constitutional wisdom of the time, tenuous. In a spiteful dissent, Justice james mcreynolds attacked Hughes's purely pragmatic approach as a monstrous miscarriage of justice. Delivering his opinion orally, he exclaimed, "This is Nero at his worst. The Constitution is gone!"

In cases involving public obligations, the majority rested on sturdier constitutional ground. In accordance with the emergency bank act, E. C. Nortz had surrendered his gold certificates after the government refused his demand for payment in gold. He sued for the difference between the currency he received and the value of the gold, over $64,000. Hughes, writing in Nortz v. United States, declared that gold certificates were only one form of currency and were thus replaceable by any other valid currency. Because Nortz suffered only "nominal" damages, his suit failed. In so deciding, the Court avoided the question whether gold certificates amounted to a contract with the government. In Perry v. United States, however, an 8–1 Court admitted that a government Liberty bond was a contractual obligation. Insofar as the joint resolution abrogated gold clauses in public contracts, it must be unconstitutional. A 5–4 majority quickly moved to destroy the force of this concession, however. Because the rise in gold prices which formed the basis of Perry's suit resulted from government manipulation of monetary values, payment in excess of a simple dollar-for-dollar exchange would constitute "unjust enrichment." Perry, like Nortz, had sustained only minimal damages and his suit likewise failed.

As McReynolds's dissent aptly noted, the majority was more concerned with economic and political consequences than constitutional precedent. robert h. jackson, later on the Court himself, wrote that "in the guise of private law suits involving a few dollars, the whole American economy was haled before the Supreme Court." In these cases, by theoretically destroying thousands of obligations, the Court sustained Congress's exercise of the monetary power—a course it found itself unable to follow when later confronted by other major New Deal legislation.

David Gordon
(1986)

Bibliography

Dawson, John P. 1935 Gold Clause Decisions. Michigan Law Review 33:647–684.